View source for Video game crash of 1983

{{short description|1983 American video gaming economic recession}}
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{{VG history|expandmenu=1}}The '''video game crash of 1983''' (known in [[Japan]] as the '''Atari shock''')<ref name=":02">{{Cite web |title=Wikipediaに「アタリショックという言葉を初めて使ったのはトイザらスの副社長」と書くことはできない |url=https://loderun.blog.ss-blog.jp/2022-12-09 |access-date=November 6, 2023 |website=Runner's High! }}{{Dead link|date=June 2025 |bot=InternetArchiveBot |fix-attempted=yes }}</ref> was a large-scale [[recession]] in the [[video game industry]] that occurred from 1983 to 1985 in the [[United States]]. The crash was attributed to several factors, including [[market saturation]] in the number of [[video game consoles]] and available games, many of which [[shovelware|were of poor quality]]. Waning interest in [[console games]] in favor of [[personal computer]]s also played a role. Home video game revenue peaked at around $3.2 billion in 1983, then fell to around $100 million by 1985 (a drop of almost 97%). The crash abruptly ended what is retrospectively considered the [[second generation of console video gaming]] in North America. To a lesser extent, the [[arcade video game]] market also weakened as the [[golden age of arcade video games]] came to an end.

Lasting about two years, the crash shook a then-booming video game industry and led to the bankruptcy of several companies producing [[home computer]]s and video game consoles. Analysts of the time expressed doubts about the long-term viability of video game consoles and software.

The North American video game console industry recovered a few years later, mostly due to the widespread success of [[Nintendo]]'s Western branding for its [[Famicom]] console, the [[Nintendo Entertainment System]] (NES), released in October 1985. The NES was designed to avoid the missteps that caused the 1983 crash and the stigma associated with video games at that time.

== Causes and factors ==
=== Flooded console market ===
[[File:Atari-2600-Wood-4Sw-Set.jpg|thumb|Atari VCS, also known as the Atari 2600, the most popular console prior to the crash|alt=]]

The Atari VCS (renamed the [[Atari 2600]] in late 1982) was not the first home system with swappable [[game cartridge]]s, but by 1980 it was the most popular [[second generation of video game consoles|second-generation console]] by a wide margin. Launched in 1977 just ahead of [[Video game crash of 1977|the collapse of the market]] for home ''[[Pong]]'' console clones, the Atari VCS experienced modest sales for its first few years. In 1980, [[Atari, Inc.|Atari]]'s licensed version of ''[[Space Invaders]]'' from [[Taito]] became the console's [[killer application]]; sales of the VCS quadrupled, and the game was the first title to sell more than a million copies.<ref name="ultimate chp12">{{cite book |title=Ultimate History of Video Games |first=Steven |last=Kent | author-link = Steven L. Kent |page=190 |publisher=[[Three Rivers Press]] |isbn=0-7615-3643-4 |year=2001 |url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/ |chapter=Chapter 12: The Battle for the Home |chapter-url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/page/n193/mode/2up}}</ref><ref>{{cite book |last=Weiss |first=Brett |title=Classic home video games, 1972–1984: a complete reference guide |year=2007 |publisher=[[McFarland & Company|McFarland]] |location=Jefferson, N.C. |isbn=978-0-7864-3226-4 |page=108}}</ref> Spurred by the success of the Atari VCS, other consoles were introduced, both from Atari and other companies: [[Magnavox Odyssey²|Odyssey²]], [[Intellivision]], [[ColecoVision]], [[Atari 5200]], and [[Vectrex]]. Notably, [[Coleco]] sold an add-on allowing Atari VCS games to be played on the ColecoVision, as well as bundling the console with a licensed home version of [[Nintendo]]'s arcade hit ''[[Donkey Kong (arcade game)|Donkey Kong]]''. In 1982, the ColecoVision held roughly 17% of the hardware market, compared to the VCS's 58%. This was the first real threat to Atari's dominance of the home console market.<ref name="ieee history">{{cite journal | title = Innovation and Competition in Standard-Based Industries: A Historical Analysis of the U.S. Home Video Game Market | first1 = Scott | last1= Gallager | first2 = Seung | last2 =Ho Park | date = February 2002 | journal = IEEE Transactions on Engineering Management | volume = 49 | issue = 1 | pages = 67–82 | doi = 10.1109/17.985749 }}</ref>

Each new console had its own library of games produced exclusively by the console maker, while the Atari VCS also had a large selection of titles produced by third-party developers. In 1982, analysts marked trends of saturation, mentioning that the amount of new software coming in would only allow a few big hits, that retailers had devoted too much floor space to systems, and that price drops for home computers could result in an industry shakeup.<ref>{{cite news |last=Jones |first=Robert S. |date=December 12, 1982 |title=Home Video Games Are Coming Under a Strong Attack |newspaper=[[The Gainesville Sun|Gainesville Sun]] |url=https://news.google.com/newspapers?nid=1320&dat=19821212&id=L2tWAAAAIBAJ&sjid=q-kDAAAAIBAJ&pg=1609,4274079&hl=en |via=Google Books |page=21F |access-date=July 26, 2016 |archive-date=June 25, 2020 |archive-url=https://web.archive.org/web/20200625171614/https://news.google.com/newspapers?nid=1320&dat=19821212&id=L2tWAAAAIBAJ&sjid=q-kDAAAAIBAJ&pg=1609,4274079&hl=en |url-status=live }}</ref> Atari had a large inventory after significant portions of the 1982 orders were returned.<ref name=":1">{{Cite journal |last1=Gallagher |first1=S. |last2=Seung Ho Park |date=February 2002 |title=Innovation and competition in standard-based industries: a historical analysis of the US home video game market |url=https://ieeexplore.ieee.org/document/985749 |journal=IEEE Transactions on Engineering Management |volume=49 |issue=1 |pages=67–82 |doi=10.1109/17.985749|url-access=subscription }}</ref>

In addition, the rapid growth of the video game industry led to an increased demand, which the manufacturers over-projected. In 1983, an analyst for [[Goldman Sachs]] stated the demand for video games was up 100% from the previous year, but the manufacturing output had increased by 175%, creating a significant surplus. Atari CEO [[Raymond Kassar]] recognized in 1982 that the industry's saturation point was imminent. However, Kassar expected this to occur when about half of American households had a video game console. The crash occurred when about 15 million machines had been sold, which soundly under-shot Kassar's estimate.<ref name="nytimes 19832"/> Michael Katz, the president of Atari's electronic division, stated that the console market was too saturated as 30 million consoles were sold by 1982, out of the 35 million households with children between the ages of six and sixteen.{{sfn|Provenzo|1991|p=11}}

=== Loss of publishing control ===
Prior to 1979, there were no [[third-party developer]]s, with console manufacturers like Atari publishing all the games for their respective platforms. This changed in 1979, when [[Activision]] was founded by four former Atari [[Game programmer|video game programmers]] who left the company because they felt that Atari's developers should receive the same recognition and accolades (specifically in the form of sales-based royalties and public-facing credits) as the actors, directors, and musicians working for other subsidiaries of [[Warner Communications]] (Atari's parent company at the time). Already being quite familiar with the Atari VCS, the four programmers developed their own games and cartridge manufacturing processes. Atari quickly sued to block sales of Activision's products but failed to secure a [[restraining order]], and they ultimately settled the case in 1982. While the settlement stipulated that Activision pay royalties to Atari, this case ultimately legitimized the viability of third-party game developers. Activision's games were as popular as Atari's, with ''[[Pitfall!]]'' (released in 1982) selling over four million units.

Prior to 1982, Activision was one of only a handful of third parties publishing games for the Atari VCS. By 1982, Activision's success emboldened numerous other competitors to penetrate the market. However, Activision co-founder [[David Crane (programmer)|David Crane]] observed that several of these companies were supported by venture capitalists attempting to emulate the success of Activision. Without the experience and skill of Activision's team, these inexperienced competitors mostly created [[shovelware|games of poor quality]],<ref name="Gamasutra Activision2">{{cite web|last=Fleming|first=Jeffrey|title=The History Of Activision|url=https://www.gamedeveloper.com/business/the-history-of-activision|url-status=live|archive-url=https://web.archive.org/web/20161220122651/http://www.gamasutra.com/view/feature/1537/the_history_of_activision.php?print=1|archive-date=December 20, 2016|access-date=December 30, 2016|work=Gamasutra}}</ref> which Crane notably described as "the worst games you can imagine".<ref name="aa201605092">{{cite web|author=Adrian|date=May 9, 2016|title=INTERVIEW{{snd}}DAVID CRANE (ATARI/ACTIVISION/SKYWORKS)|url=http://www.arcadeattack.co.uk/david-crane/|url-status=live|archive-url=https://web.archive.org/web/20160509160135/http://www.arcadeattack.co.uk/david-crane/|archive-date=May 9, 2016|access-date=May 10, 2016|work=Arcade Attack}}</ref> While Activision's success could be attributed to the team's existing familiarity with the Atari VCS, other publishers had no such advantage.

The rapid growth of the third-party game industry was easily illustrated by the number of vendors present at the semi-annual [[Consumer Electronics Show]] (CES). According to Crane, the number of third-party developers jumped from 3 to 30 between two consecutive events.<ref name="aa201605092" /> At the Summer 1982 CES,<ref name="nytimes 19832">{{cite news|last=Kleinfield|first=N.R.|date=October 17, 1983|title=Video Games Industry Comes Down To Earth|url=https://www.nytimes.com/1983/10/17/business/video-games-industry-comes-down-to-earth.html|access-date=September 21, 2018|newspaper=[[The New York Times]]|url-access=limited|archive-date=September 13, 2018|archive-url=https://web.archive.org/web/20180913223742/https://www.nytimes.com/1983/10/17/business/video-games-industry-comes-down-to-earth.html|url-status=live}}</ref> there were 17 companies, including [[MCA Inc.]] and [[20th Century Fox|Fox Video Games]], announcing a combined 90 new Atari games.<ref name="goodman1983spring2">{{Cite magazine|last=Goodman|first=Danny|author-link=Danny Goodman|date=Spring 1983|title=Home Video Games: Video Games Update|url=http://www.atarimagazines.com/cva/v1n1/vgupdate.php|url-status=live|magazine=Creative Computing Video & Arcade Games|page=32|archive-url=https://web.archive.org/web/20171107020633/http://www.atarimagazines.com/cva/v1n1/vgupdate.php|archive-date=November 7, 2017}}</ref> By 1983, an estimated 100 companies were attempting to leverage the CES into a foothold in the market. ''[[AtariAge]]'' documented 158 different vendors that had developed for the Atari VCS.<ref name="helsinki2">{{cite conference|last=Ernkvist|first=Mirko|year=2006|title=Down Many Times, but Still Playing the Game: Creative Destruction and Industry Crashes in the Early Video Game Industry 1971–1986|url=http://www.helsinki.fi/iehc2006/papers2/Ernkvist.pdf|conference=XIV International Economic History Congress|location=Helsinki|access-date=September 11, 2020|archive-date=August 10, 2020|archive-url=https://web.archive.org/web/20200810104521/http://www.helsinki.fi/iehc2006/papers2/Ernkvist.pdf|url-status=live}}</ref> In June 1982, the Atari games on the market numbered just 100, which grew to over 400 by December. Experts predicted a glut in 1983, with only 10% of games producing 75% of sales.<ref name="mj198212262">{{cite news|date=December 26, 1982|title=Stream of video games is endless|pages=Business 1|work=Milwaukee Journal|url=https://news.google.com/newspapers?id=nwsdAAAAIBAJ&pg=3635%2C1989311|access-date=January 10, 2015|archive-date=March 12, 2016|archive-url=https://web.archive.org/web/20160312093025/https://news.google.com/newspapers?id=nwsdAAAAIBAJ&sjid=QX8EAAAAIBAJ&pg=3635%2C1989311|url-status=dead}}</ref>

''[[BYTE]]'' stated in December, "in 1982 few games broke new ground in either design or format ... If the public really likes an idea, it is milked for all its worth, and numerous clones of a different color soon crowd the shelves. That is, until the public stops buying or something better comes along. Companies who believe that microcomputer games are the [[hula hoop]] of the 1980s only want to play Quick Profit."<ref name="clark1982122">{{cite news|author=Clark, Pamela|date=December 1982|title=The Play's the Thing|pages=6|work=BYTE|url=https://archive.org/stream/byte-magazine-1982-12/1982_12_BYTE_07-12_Game_Plan_1982#page/n7/mode/2up|access-date=October 19, 2013}}</ref> [[Bill Kunkel (journalist)|Bill Kunkel]] said in January 1983 that companies had "licensed everything that moves, walks, crawls, or tunnels beneath the earth. You have to wonder how tenuous the connection will be between the game and the movie ''[[Marathon Man (film)|Marathon Man]]''. What are you going to do, present a video game root canal?"<ref name="harmetz198301152">{{cite news|last=Harmetz|first=Aljean|date=January 15, 1983|title=New Faces, More Profits For Video Games|page=18|newspaper=Times-Union|url=https://news.google.com/newspapers?id=jnhcAAAAIBAJ&pg=4201,2482231|access-date=February 28, 2012|archive-date=August 1, 2019|archive-url=https://web.archive.org/web/20190801133617/https://news.google.com/newspapers?id=jnhcAAAAIBAJ&sjid=a1cNAAAAIBAJ&pg=4201,2482231|url-status=live}}</ref> By September 1983, the ''Phoenix'' stated that 2600 cartridges were "no longer a growth industry".{{r|mitchell19830906}} Activision, Atari, and Mattel all had experienced programmers, but many of the new companies rushing to join the market did not have the expertise or talent to create quality games. Titles such as the ''[[Kaboom! (video game)|Kaboom!]]''-like ''[[Lost Luggage (video game)|Lost Luggage]]'', rock band tie-in ''[[Journey Escape]]'', and plate-spinning game ''[[Dishaster]]'', were examples of titles made in the hopes of taking advantage of the video-game boom, but later proved unsuccessful with retailers and potential customers.

The flood of new games was released into a limited competitive space. According to Activision's Jim Levy, they had projected that the total cartridge market in 1982 would be around 60 million, anticipating Activision would be able to secure between 12% and 15% of that market for their production numbers. However, with at least 50 different companies in the new marketspace, and each having produced between one and two million cartridges, along with Atari's own estimated 60 million cartridges in 1982, there was over 200% production of the actual demand for cartridges in 1982, which contributed to the stockpiling of unsold inventory during the crash.<ref name="high score activision crash"/>

=== Competition from home computers ===
{{see also|History of personal computers}}
[[File:Commodore-64-Computer-FL.jpg|thumb|right|The [[Commodore 64]] survived the crash and became one of the best-selling computers of all time.]]

Inexpensive home computers had been first introduced in 1977. By 1979, Atari unveiled the [[Atari 8-bit computers|400 and 800 computers]], built around a chipset originally meant for use in a game console, and which retailed for the same price as their respective names. In 1981, [[IBM]] introduced the first [[IBM Personal Computer]] with a $1,565 base price<ref name="ibmpc25">{{cite web|url=http://www-03.ibm.com/ibm/history/exhibits/pc25/pc25_birth.html|title=IBM Archives: The birth of the IBM PC|date=January 23, 2003|url-status=dead|archive-url=https://web.archive.org/web/20140102212336/http://www-03.ibm.com/ibm/history/exhibits/pc25/pc25_birth.html|archive-date=January 2, 2014}}</ref> ({{Inflation|US|1565|1981|fmt=eq}}), while [[Sinclair Research]] introduced its low-end [[ZX81]] microcomputer for [[Pound sterling|£]]70 ({{Inflation|UK|70|1981|fmt=eq|cursign=£}}). By 1982, new desktop computer designs were commonly providing better color graphics and sound than game consoles and personal computer sales were booming. The [[TI-99/4A]] and the Atari 400 were both at $349 ({{Inflation|US|349|1982|fmt=eq}}), the [[TRS-80 Color Computer]] sold at $379 ({{Inflation|US|379|1982|fmt=eq}}), and [[Commodore International]] had just reduced the price of the [[VIC-20]] to $199 ({{Inflation|US|199|1982|fmt=eq}}) and the [[Commodore 64]] to $499 ({{Inflation|US|499|1982|fmt=eq}}).<ref name="Ahl">Ahl, David H. (1984 November). [http://www.atarimagazines.com/creative/v10n11/30_The_first_decade_of_perso.php The first decade of personal computing] {{webarchive|url=https://web.archive.org/web/20161210124312/http://www.atarimagazines.com/creative/v10n11/30_The_first_decade_of_perso.php |date=December 10, 2016 }}. ''Creative Computing'', vol. 10, no. 11: p. 30.</ref><ref>{{cite web|url=http://www.westegg.com/inflation/infl.cgi|title=The Inflation Calculator|url-status=live|archive-url=https://web.archive.org/web/20180326173743/https://westegg.com/inflation/infl.cgi|archive-date=March 26, 2018}}</ref>

Because computers generally had more [[Computer storage|memory]] and faster [[central processing unit|processors]] than a console, they permitted more sophisticated games. A 1984 compendium of reviews of Atari 8-bit software used 198 pages for games, compared to 167 for all other software types.<ref name="aw1984">{{cite book |url=https://archive.org/stream/Atari_Software_1984#page/n3/mode/2up |title=The Addison-Wesley Book of Atari Software 1984 |publisher=Addison-Wesley |author1=Stanton, Jeffrey |author2=Wells, Robert P. |author3=Rochowansky, Sandra |author4=Mellin, Michael |year=1984 |pages=TOC |isbn=020116454X}}</ref> Home computers could also be used for tasks such as [[word processing]] and home accounting. Games were easier to distribute, since they could be sold on [[floppy disk]]s or [[cassette tape]]s instead of [[Read-only memory|ROM]] cartridges. This opened the field to a [[cottage industry]] of third-party software developers. Writeable storage media allowed players to save games in progress, a useful feature for increasingly complex games which was not available on the consoles of the era.

In 1982, a price war that began between Commodore and Texas Instruments led to home computers becoming as inexpensive as video-game consoles;<ref name="pollack19830619">{{cite news |url=https://www.nytimes.com/1983/06/19/business/the-coming-crisis-in-home-computers.html?pagewanted=all |title=The Coming Crisis in Home Computers |work=The New York Times |date=June 19, 1983 |access-date=January 19, 2015 |author=Pollack, Andrew |url-status=live |archive-url=https://web.archive.org/web/20150120040951/http://www.nytimes.com/1983/06/19/business/the-coming-crisis-in-home-computers.html?pagewanted=all |archive-date=January 20, 2015 |url-access=limited}}</ref> after Commodore cut the retail price of the C64 to $300 in June 1983, some stores began selling it for as little as $199.{{r|mitchell19830906}} [[Dan Gutman]], founder in 1982 of ''Video Games Player'' magazine in an article in 1987, recalled in 1983 that "People asked themselves, 'Why should I buy a video game system when I can buy a computer that will play games and do so much more?'"{{r|gutman198712}} ''[[The Boston Phoenix]]'' stated in September 1983 about the cancellation of the [[Intellivision III]], "Who was going to pay $200-plus for a machine that could only play games?"<ref name="mitchell19830906">{{cite news |url=https://news.google.com/newspapers?id=gn0hAAAAIBAJ&pg=5584%2C3561802 |title=A summer-CES report |work=Boston Phoenix |date=September 6, 1983 |access-date=January 10, 2015 |author=Mitchell, Peter W. |pages=4 |archive-date=February 9, 2021 |archive-url=https://web.archive.org/web/20210209104106/https://news.google.com/newspapers?id=gn0hAAAAIBAJ&pg=5584%2C3561802 |url-status=live }}</ref> Commodore explicitly targeted video game players. Spokesman [[William Shatner]] asked in VIC-20 commercials "Why buy just a video game from Atari or Intellivision?", stating that "unlike games, it has a real computer keyboard" yet "plays great games too".<ref name="cbmtvad">{{Cite AV media |url=https://www.youtube.com/watch?v=UK9VU1aJvTI |title=Commodore VIC-20 ad with William Shatner |date=June 9, 2010 |url-status=live |archive-url=https://web.archive.org/web/20170406170423/https://www.youtube.com/watch?v=UK9VU1aJvTI |archive-date=April 6, 2017 }}</ref> Commodore's ownership of chip fabricator [[MOS Technology]] allowed manufacture of [[integrated circuit]]s [[Vertical integration|in-house]], so the VIC-20 and C64 sold for much lower prices than competing home computers. In addition, both Commodore computers were designed to utilize the [[Atari joystick port|ubiquitous Atari controllers]] so they could tap into the existing controller market.

"I've been in retailing 30 years and I have never seen any category of goods get on a self-destruct pattern like this", a [[Service Merchandise]] executive told ''The New York Times'' in June 1983.{{r|pollack19830619}} The price war was so severe that in September Coleco CEO [[Arnold Greenberg (Coleco)|Arnold Greenberg]] welcomed rumors of an [[IBM PCjr|IBM 'Peanut']] home computer because although IBM was a competitor, it "is a company that knows how to make money". "I look back a year or two in the videogame field, or the home-computer field", Greenberg added, "how much better everyone was, when most people were making money, rather than very few".<ref name="coleco19830928b">{{Cite AV media |url=https://www.youtube.com/watch?v=gg_I9TGYM-w |title=Coleco Presents The Adam Computer System |date=May 3, 2016 |publisher=YouTube |orig-year=1983-09-28 |time=1:06:55 |quote=IBM is just not another strong company making a positive statement about the home-computer field's future. IBM is a company that knows how to make money. IBM is a company that knows how to make money in hardware, and makes more money in software. What IBM can bring to the home-computer field is something that the field collectively needs, particularly now: A respect for profitability. A capability to earn money. That is precisely what the field needs ... I look back a year or two in the videogame field, or the home-computer field, how much better everyone was, when most people were making money, rather than very few were making money. |url-status=live |archive-url=https://web.archive.org/web/20170103132547/https://www.youtube.com/watch?v=gg_I9TGYM-w |archive-date=January 3, 2017 }}</ref> Companies reduced production in the middle of the year because of weak demand even as prices remained low, causing shortages as sales suddenly rose during the Christmas season;<ref name="rosenberg19831208">{{Cite news |title=Home Computer? Maybe Next Year |last=Rosenberg |first=Ronald |date=December 8, 1983 |work=[[The Boston Globe]]}}</ref> only the Commodore 64 was widely available, with an estimated more than 500,000 computers sold during Christmas.<ref name="nyt19831210">{{Cite news |url=https://www.nytimes.com/1983/12/10/business/under-1983-christmas-tree-expect-the-home-computer.html |title=Under 1983 Christmas Tree, Expect the Home Computer |date=December 10, 1983 |work=The New York Times |access-date=July 2, 2017 |language=en-US |issn=0362-4331 |url-status=live |archive-url=https://web.archive.org/web/20171107112231/http://www.nytimes.com/1983/12/10/business/under-1983-christmas-tree-expect-the-home-computer.html |archive-date=November 7, 2017 |url-access=limited}}</ref> The 99/4A was such a disaster for TI, that the company's stock immediately rose by 25% after the company discontinued it and exited the home-computer market in late 1983.<ref name="ap19831101">{{Cite news |title=IBM's Peanut Begins New Computer Phase |date=November 1, 1983 |work=The Boston Globe |agency=Associated Press}}</ref><ref name="maceti19831121">{{cite news | url=https://books.google.com/books?id=uy8EAAAAMBAJ&pg=PA22 | title=TI retires from home-computer market | access-date=February 25, 2011 | author=Mace, Scott | date=November 21, 1983 | work=InfoWorld | pages=22, 27}}</ref> [[JCPenney]] announced in December 1983 that it would soon no longer sell home computers, because of the combination of low supply and low prices.<ref name="bg19831217">{{Cite news |title=Penney Shelves its Computers |date=December 17, 1983 |work=The Boston Globe}}</ref> [[Radio Shack]] avoided drastic price cuts for its home computers and remained profitable in 1983.<ref name="ahl198411">{{cite web | url=http://www.atarimagazines.com/creative/v10n11/292_Tandy_Radio_Shack_enters_.php | title=Tandy Radio Shack enters the magic world of computers | accessdate=February 26, 2011 | author=Ahl, David | date=November 1984 | work=[[Creative Computing]] | page=292}}</ref>

By that year, Gutman wrote, "Video games were officially dead and computers were hot". He renamed his magazine ''Computer Games'' in October 1983, but "I noticed that the word ''games'' became a dirty word in the press. We started replacing it with ''simulations'' as often as possible". Soon "The computer slump began ... Suddenly, everyone was saying that the home computer was a fad, just another hula hoop". ''Computer Games'' published its last issue in late 1984.<ref name="gutman198712">{{cite magazine |url=https://archive.org/stream/COMPUTEs_Apple_Applications_Vol._5_No._2_Issue_6_1987-12_COMPUTE_Publications_US#page/n65/mode/2up |title=The Fall And Rise of Computer Games |magazine=Compute!'s Apple Applications |date=December 1987 |access-date=August 18, 2014 |author=Gutman, Dan |pages=64 |volume=5 |number=2 #6}}</ref> In 1988, ''[[Computer Gaming World]]'' founder Russell Sipe noted that "the arcade game crash of 1984 took down the majority of the computer game magazines with it." He stated that, by "the winter of 1984, only a few computer game magazines remained", and by mid-1985, ''Computer Gaming World'' "was the only 4-color computer game magazine left".<ref>{{cite magazine |url=http://www.cgwmuseum.org/galleries/issues/cgw_50.pdf#page=7 |archive-url=https://web.archive.org/web/20160418152038/http://www.cgwmuseum.org/galleries/issues/cgw_50.pdf |archive-date=April 18, 2016 |issue=50 |magazine=Computer Gaming World |pages=6–7 |date=August 1988 |title=The Greatest Story Ever told |first=Russell |last=Sipe |url-status=live}}</ref>

== Immediate effects ==
With the release of so many new games in 1982 that flooded the market, most stores had insufficient space to carry new games and consoles. As stores tried to return the surplus games to the new publishers, the publishers had neither new products nor cash to issue refunds to the retailers. Many publishers, including [[Games by Apollo]]<ref>{{Citation |last=Seitz |first=Lee K. |title=CVG Nexus: Timeline – 1980s |url=http://home.hiwaay.net/~lkseitz/cvg/nexus/features/timeline/1980s.shtml |access-date=November 16, 2007 |archive-url=https://web.archive.org/web/20071013165228/http://home.hiwaay.net/~lkseitz/cvg/nexus/features/timeline/1980s.shtml |archive-date=October 13, 2007 |url-status=dead }}</ref> and [[U.S. Games]],<ref name=prince198309>{{cite magazine |last=Prince |first=Suzan |date=September 1983 |title=Faded Glory: The Decline, Fall and Possible Salvation of Home Video |url=https://archive.org/stream/Video_Games_Volume_1_Number_12_1983-09_Pumpkin_Press_US#page/n17/mode/2up |magazine=Video Games |publisher=Pumpkin Press |access-date=February 24, 2016 }}</ref> quickly folded. Unable to return the unsold games to defunct publishers, stores marked down the titles and placed them in discount bins and sale tables. Recently released games which initially sold for US$35 (equivalent to $116 in 2024) were in bins for $5 ($16 in 2024).<ref name=prince198309/><ref name="daglow198808">{{cite magazine |title=The Changing Role of Computer Game Designers |magazine=[[Computer Gaming World]] |date=August 1988 |last=Daglow |first=Don L. |pages=18, 42 |issue=50 |url=https://archive.org/details/Computer_Gaming_World_Issue_50/page/n17/mode/2up}}</ref><ref name="high score activision crash"/>

The presence of third-party sales drew the market share that the console manufacturers had. Atari's share of the cartridge-game market fell from 75% in 1981 to less than 40% in 1982, which negatively affected their finances.<ref>{{cite news|last=Rosenberg|first=Ron|title=Competitors Claim Role in Warner Setback|url=https://pqasb.pqarchiver.com/boston/access/666912291.html?FMT=ABS&FMTS=ABS:FT&type=current&date=Dec+11%2C+1982&author=Ron+Rosenberg+Globe+Staff&pub=Boston+Globe+%28pre-1997+Fulltext%29&desc=COMPETITORS+CLAIM+ROLE+IN+WARNER+SETBACK&pqatl=google|access-date=March 6, 2012|newspaper=[[The Boston Globe]]|date=December 11, 1982|page=1|url-status=dead|archive-url=https://web.archive.org/web/20121107073803/http://pqasb.pqarchiver.com/boston/access/666912291.html?FMT=ABS&FMTS=ABS:FT&type=current&date=Dec+11%2C+1982&author=Ron+Rosenberg+Globe+Staff&pub=Boston+Globe+%28pre-1997+Fulltext%29&desc=COMPETITORS+CLAIM+ROLE+IN+WARNER+SETBACK&pqatl=google|archive-date=November 7, 2012}}</ref> The bargain sales of poor-quality titles further drew sales away from the more successful third-party companies like Activision due to poorly informed consumers being drawn by price to purchase the bargain titles rather than quality. By June 1983, the market for the more expensive games had shrunk dramatically and was replaced by a new market of rushed-to-market, low-budget games.<ref name="Gamasutra Activision">{{cite web|url=https://www.gamedeveloper.com/business/the-history-of-activision |title=The History Of Activision | work = Gamasutra | first =Jeffrey | last =Flemming |access-date=December 30, 2016 |url-status=live |archive-url=https://web.archive.org/web/20161220122651/http://www.gamasutra.com/view/feature/1537/the_history_of_activision.php?print=1 |archive-date=December 20, 2016}}</ref> Crane said that "those awful games flooded the market at huge discounts, and ruined the video game business".<ref name=aa20160509>{{cite web |url=http://www.arcadeattack.co.uk/david-crane/ |title=INTERVIEW{{snd}}DAVID CRANE (ATARI/ACTIVISION/SKYWORKS) |work=[[Arcade Attack]] |date=May 9, 2016 |access-date=May 10, 2016 |author=Adrian |url-status=live |archive-url=https://web.archive.org/web/20160509160135/http://www.arcadeattack.co.uk/david-crane/ |archive-date=May 9, 2016 }}</ref>

A massive industry shakeout resulted. [[Magnavox]] abandoned the video game business entirely. [[Imagic]] withdrew its [[Initial public offering|IPO]] the day before its stock was to go public; the company later collapsed. Activision had to downsize across 1984 and 1985 due to loss of revenue, and to stay competitive and maintain financial security, began development of games for the personal computer. Within a few years, Activision no longer produced cartridge-based games and focused solely on personal computer games.<ref name="Gamasutra Activision"/><ref name="high score activision crash"/>

[[File:Atari E.T. Dig- Alamogordo, New Mexico (14036097792).jpg|thumb|right|Partially surviving cases and cartridges retrieved during the 2014 excavation of the Alamogordo, New Mexico landfill Atari had used in 1983. ''E.T.'', ''[[Centipede (video game)|Centipede]]'', and other Atari materials can be seen.]]
Atari was one of the companies most affected by the crash. As a company, its revenue dropped significantly due to dramatically lower sales and cost of returned stock. By mid-1983, the company had lost {{USD|356 million}}, was forced to lay off 30% of its 10,000 employees, and moved all manufacturing to Hong Kong and Taiwan.<ref name=":22">{{Cite book |last=Kocurek |first=Carly A. |title=Coin-operated Americans: rebooting boyhood at the video game arcade |date=2015 |publisher=University of Minnesota Press |isbn=978-0-8166-9183-8 |location=Minneapolis London}}</ref> Unsold ''Pac-Man'', ''E.T. the Extra-Terrestrial'', and other 1982 and 1983 games and consoles started to fill their warehouses. In September 1983, Atari discreetly buried much of this excess stock in a landfill near [[Alamogordo, New Mexico]], though Atari did not comment about their activity at the time. Misinformation related to sales of ''Pac-Man'' and ''E.T.'' led to the [[urban legend]] of the [[Atari video game burial]], that millions of unsold cartridges were buried there. Gaming historians received permission to dig up the landfill as part of a documentary in 2014, during which former Atari executive James Heller, who had overseen the original burial clarified that only about 728,000 cartridges had been buried in 1982, backed by estimates made during the excavation, and disproving the scale of the urban legend.<ref name="npr">{{cite news |title=Diggers Find Atari's E.T. Games in Landfill |agency=Associated Press |date=April 26, 2014 |url=https://www.npr.org/templates/story/story.php?storyId=307031037 |access-date=April 26, 2014 |url-status=dead |archive-url=https://web.archive.org/web/20140426232656/http://www.npr.org/templates/story/story.php?storyId=307031037 |archive-date=April 26, 2014 }}</ref> Atari's burial remains an iconic representation of the 1983 video game crash.<ref name="InfoWorld">{{cite magazine |first1=John C |last1=Dvorak |date=August 12, 1985 |title=Is the PCJr Doomed To Be Landfill? |magazine=[[InfoWorld]] |volume=7 |issue=32 |page=64 |url=https://books.google.com/books?id=Ai8EAAAAMBAJ&q=atari+landfill&pg=RA1-PA64 |access-date=September 10, 2011 |archive-date=February 9, 2023 |archive-url=https://web.archive.org/web/20230209133536/https://books.google.com/books?id=Ai8EAAAAMBAJ&q=atari+landfill&pg=RA1-PA64 |url-status=live }}</ref><ref name="PCAdvisor">{{cite web|url=http://www.pcadvisor.co.uk/news/tablets/3298074/hp-touchpads-to-be-dumped-in-landfill/ |title=HP TouchPads to be dumped in landfill? |first=Simon |last=Jary |publisher=[[PC Advisor]] |date=August 19, 2011 |access-date=September 10, 2011 |url-status=live |archive-url=https://web.archive.org/web/20111108045640/http://www.pcadvisor.co.uk/news/tablets/3298074/hp-touchpads-to-be-dumped-in-landfill/ |archive-date=November 8, 2011 }}</ref><ref name="WSJ">{{cite news |url=https://www.wsj.com/articles/SB10001424053111904006104576502744235853146?mod=googlenews_wsj |title=Book Review: Super Mario |newspaper=[[Wall Street Journal]] |first=James |last=Kennedy |date=August 20, 2011 |access-date=September 10, 2011 |url-status=live |archive-url=https://web.archive.org/web/20170906225910/https://www.wsj.com/articles/SB10001424053111904006104576502744235853146?mod=googlenews_wsj |archive-date=September 6, 2017 |url-access=subscription}}</ref> By the end of 1983, Atari had over {{USD|536 million}} in losses, leading Warner Communication to sell Atari's consumer products division in July 1984 to [[Jack Tramiel]], who had recently departed Commodore International. Tramiel's new company took the name [[Atari Corporation]], and they directed their efforts into developing their new personal computer line, the [[Atari ST]], over the console business.<ref name="ultimate chp14">{{cite book |title=Ultimate History of Video Games |first=Steven |last=Kent |page=190 |publisher=[[Three Rivers Press]] |isbn=0-7615-3643-4 |year=2001 | chapter=Chapter 14: The Fall | url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/ |chapter-url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/page/n233/mode/2up}}</ref>

Lack of confidence in the video game sector caused many retailers to stop selling video game consoles or reduced their stock significantly, reserving floor or shelf space for other products.<ref name="g4tv gamemakers"/> Retailers established to exclusively sell video games folded, which impacted sales of personal computer games.
<ref name="high score activision crash">{{cite book|last1=DeMaria|first1=Rusel|last2=Wilson|first2=Johnny L.|title=High Score!: The Illustrated History of Electronic Games|date=2003|publisher=McGraw-Hill/Osborne|location=New York|isbn=0-07-223172-6|pages=103–105|edition=2}}</ref>

The full effects of the industry crash were not felt until 1985.<ref>{{cite magazine |last=Katz |first=Arnie |title=1984: The Year That Shook Electronic Gaming |magazine=[[Electronic Games]] |date=January 1985 |volume=3 |issue=35 |pages=30–31 [30] |url=https://archive.org/stream/electronic-games-magazine-1985-01/Electronic_Games_Issue_35_Vol_03_11_1985_Jan#page/n29/mode/2up |access-date=February 2, 2012}}{{dead link|date=December 2021 |reason=Item taken down from Internet Archive}}</ref> Despite Atari's claim of 1 million in worldwide sales of its 2600 game system that year,<ref>{{cite web|url=http://www.atarimagazines.com/compute/issue71/electronics_show.php|title=A Turning Point for Atari? Report from the Winter Consumer Electronics Show|first=Tom R.|last=Halfhill|url-status=live|archive-url=https://web.archive.org/web/20160409221229/http://www.atarimagazines.com/compute/issue71/electronics_show.php|archive-date=April 9, 2016}}</ref> recovery was slow. The sales of home video games had dropped from $3.2 billion in 1982<ref name="nintendoland">{{cite web |author=Liedholm, Marcus and Mattias |title=The Famicom rules the world!{{snd}}(1983–89) |work=Nintendo Land |url=http://nintendoland.com/history/hist3.htm |access-date=February 14, 2006 |archive-url=https://web.archive.org/web/20100101161115/http://nintendoland.com/history/hist3.htm |archive-date=January 1, 2010}}</ref> to $100 million in 1985.<ref>{{Cite news|url=https://news.google.com/newspapers?id=qKIbAAAAIBAJ&pg=5459,6856521|title=NEC out to dazzle Nintendo fans|last=Dvorchak|first=Robert|date=July 30, 1989|work=The Times-News|access-date=May 11, 2017|page=1D|archive-date=May 12, 2016|archive-url=https://web.archive.org/web/20160512205357/https://news.google.com/newspapers?id=qKIbAAAAIBAJ&sjid=R04EAAAAIBAJ&pg=5459,6856521|url-status=live}}</ref> Analysts doubted the long-term viability of the video game industry,<ref>{{cite web|url=https://news.google.com/newspapers?nid=1320&dat=19821212&id=L2tWAAAAIBAJ&pg=1609,4274079&hl=en|title=Gainesville Sun – Google News Archive Search|access-date=November 22, 2020|archive-date=February 1, 2021|archive-url=https://web.archive.org/web/20210201160250/https://news.google.com/newspapers?nid=1320&dat=19821212&id=L2tWAAAAIBAJ&pg=1609,4274079&hl=en|url-status=live}}</ref> and, according to [[Electronic Arts]]' [[Trip Hawkins]], it had been very difficult to convince retailers to carry video games due to the stigma carried by the fall of Atari until 1985.<ref name="high score activision crash"/>

In late 1985, the [[Nintendo Entertainment System]] saw a limited release in North America, followed by the full national release early the following year.<ref name="high score activision crash"/> Following 1986, the industry began recovering, and by 1988, annual sales in the industry exceeded $2.3 billion, with 70% of the market dominated by Nintendo.<ref>{{citation |title=Toy Trends |work=Orange Coast |date=December 1988 |volume=14 |issue=12 |issn=0279-0483 |publisher=[[Emmis Communications]] |page=88 |url=https://books.google.com/books?id=82AEAAAAMBAJ&pg=PA88 |access-date=April 26, 2011 |archive-date=February 9, 2023 |archive-url=https://web.archive.org/web/20230209133536/https://books.google.com/books?id=82AEAAAAMBAJ&pg=PA88 |url-status=live }}</ref> In 1986, Nintendo president [[Hiroshi Yamauchi]] noted that "Atari collapsed because they gave too much freedom to third-party developers and the market was swamped with rubbish games". In response, Nintendo limited the number of titles that third-party developers could release for their system each year, and promoted its "[[Nintendo#Seal of Quality|Seal of Quality]]", which it allowed to be used on games and peripherals by publishers that met Nintendo's quality standards.<ref name=takiff19860620>{{cite news |last=Takiff |first=Jonathan |title=Video Games Gain in Japan, Are Due For Assault on U.S. |url=https://news.google.com/newspapers?id=QBhcAAAAIBAJ&pg=2846,1271636 |access-date=April 10, 2012 |newspaper=[[The Vindicator]] |date=June 20, 1986 |page=2 |archive-date=February 2, 2021 |archive-url=https://web.archive.org/web/20210202203249/https://news.google.com/newspapers?id=QBhcAAAAIBAJ&pg=2846,1271636 |url-status=live }}</ref>

== Long-term effects ==
[[File:Chart of the 1983 video game crash.svg|thumb|398x398px|Global revenue of the video game industry from 1978 to 1990.<ref name="vgmarket">{{cite web |last=Naramura |first=Yuki |date=January 23, 2019 |title=Peak Video Game? Top Analyst Sees Industry Slumping in 2019 |url=https://www.bloomberg.com/news/articles/2019-01-23/peak-video-game-top-analyst-sees-industry-slumping-in-2019 |url-access=subscription |url-status=live |archive-url=https://web.archive.org/web/20190715024243/http://www.bloomberg.com/news/articles/2019-01-23/peak-video-game-top-analyst-sees-industry-slumping-in-2019 |archive-date=July 15, 2019 |access-date=January 29, 2019 |work=[[Bloomberg L.P.]]}}</ref> The 1983 crash had rippling effects across the video game industry.]]
The crash in 1983 had the largest impact in the United States. It rippled through all sectors of the global video game market worldwide, though sales of video games still remained strong in Japan, Europe, and Canada from the beleaguered American companies.<ref name="ultimate chp17">{{cite book |title=Ultimate History of Video Games |first=Steven |last=Kent |page=190 |publisher=[[Three Rivers Press]] |isbn=0-7615-3643-4 |year=2001 | chapter=Chapter 17: We Tried to Keep from Laughing |url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/ |chapter-url=https://archive.org/details/ultimatehistoryofvideogamesrevisited/page/n291/mode/2up}}</ref> It took several years for the U.S. industry to recover. The estimated {{USD|42 billion}} worldwide market in 1982, including arcade, console, and computer games, dropped to {{USD|14 billion}} by 1985. There was also a significant shift in the home video game market, away from consoles to personal computer software, between 1983 and 1985.<ref name="vgmarket"/>

1984 is when some of the longer-term effects started to take a toll on the video game console. Companies like [[Magnavox]] had decided to pull out of the video game console industry. The general consensus was that video games were just a fad that came as quickly as they left. But outside of North America the video game industry was doing very well. Home consoles were growing in popularity in Japan while home computers were surging across Europe.

United States sales fell from $3 billion to around $100 million in 1985. During the holiday season of 1985 [[Hiroshi Yamauchi]] decided to go to New York small markets about putting their products in their stores. [[Minoru Arakawa]] offered a money back guarantee from Nintendo that they would pay back for any stock that was left unsold. In total Nintendo sold 50,000 units, about half of the units they shipped to the US.<ref>{{Cite book|last=Wardyga|first=Brian|title=The Video Games Textbook|publisher=A K Peters/ CRC Press|year=2018|isbn=9781351172363|location=New York|pages=113}}</ref>

=== Japanese domination ===
The U.S. video game crash had two long-lasting results. The first result was that dominance in the home console market shifted from the United States to Japan. The crash did not directly affect the financial viability of the video game market in Japan, but it still came as a surprise there and created repercussions that changed that industry, and thus became known as the "Atari shock".<ref name=downmany>{{cite web |url=http://sh.diva-portal.org/smash/get/diva2:213024/FULLTEXT01.pdf |title=Down Many Times, but Still Playing the Game: Creative Destruction and Industry Crashes in the Early Video Game Industry 1971–1986 |url-status=live |archive-url=https://web.archive.org/web/20140501201148/http://sh.diva-portal.org/smash/get/diva2:213024/FULLTEXT01.pdf |archive-date=May 1, 2014 }}</ref>

Prior to the crash, Jonathan Greenberg of ''[[Forbes]]'' had predicted in early 1981 that Japanese companies would eventually dominate the North American video game industry, as American video game companies were increasingly licensing products from Japanese companies, who in turn were opening up North American branches.<ref name="Greenberg">{{Cite magazine|last=Greenberg|first=Jonathan|date=April 13, 1981|title=Japanese invaders: Move over Asteroids and Defenders, the next adversary in the electronic video game wars may be even tougher to beat|url=https://jonathangreenberg.com/wp-content/uploads/2018/01/Japanese-Invaders-April-13-1981.pdf|magazine=[[Forbes]]|volume=127|issue=8|pages=98, 102|access-date=December 2, 2021|archive-date=December 2, 2021|archive-url=https://web.archive.org/web/20211202200213/https://jonathangreenberg.com/wp-content/uploads/2018/01/Japanese-Invaders-April-13-1981.pdf|url-status=live}}</ref> By 1982–1983, Japanese manufacturers had captured a large share of the North American arcade market, which Gene Lipkin of [[Data East|Data East USA]] partly attributed to Japanese companies having more finances to invest in new ideas.<ref>{{cite magazine |title=Special Report: Gene Lipkin (Data East USA) |magazine=RePlay |date=January 1991 |volume=16 |issue=4 |page=92 |url=https://archive.org/details/re-play-volume-16-issue-no.-4-january-1991-600dpi/RePlay%20-%20Volume%2016%2C%20Issue%20No.%204%20-%20January%201991/page/92}}</ref>

As the crash was happening in the United States, Japan's game industry started to shift its attention from arcade games to home consoles. Within one month in 1983, two new home consoles were released in Japan: the Nintendo [[Family Computer]] (Famicom) and [[Sega]]'s [[SG-1000]] (which was later supplanted by the [[Master System]]) heralding the [[Third generation of video game consoles|third generation of home consoles]] retrospectively.<ref name="usgamer 1983">{{cite web | url = https://www.usgamer.net/articles/greatest-years-in-gaming-history-1983 | title = Greatest Years in Gaming History: 1983 | first = Jeremy | last = Parish | date = August 28, 2014 | access-date = September 13, 2019 | work = [[USGamer]] | archive-date = January 29, 2021 | archive-url = https://web.archive.org/web/20210129233449/https://www.usgamer.net/articles/greatest-years-in-gaming-history-1983 | url-status = live }}</ref> These two consoles were very popular, buoyed by an economic bubble in Japan. The units readily outsold Atari and Mattel's existing systems, and with both Atari and Mattel focusing on recovering domestic sales, the Japanese consoles effectively went uncontested over the next few years.<ref name="usgamer 1983"/> By 1986, three years after its introduction, 6.5 million Japanese homes – 19% of the population – owned a Famicom, and Nintendo began exporting it to the U.S., where the home console industry was only just recovering from the crash.{{r|takiff19860620}}

The impact on the retail sector of the crash was the most formidable barrier that confronted Nintendo as it tried to market the Famicom in the United States. A planned deal with Atari to distribute the Famicom in North America fell apart in the wake of the crash, resulting in Nintendo handling the international release themselves two years later.<ref name="Ultimate History">{{cite book |last=Kent |first=Steven L. |author-link=Steven L. Kent |title=[[The Ultimate History of Video Games: The Story Behind the Craze that Touched our Lives and Changed the World]] |year=2001 |publisher=Prima Publishing |location=Roseville, California |isbn=0-7615-3643-4}}</ref>{{rp|283–285}} Additionally, retailer opposition to video games was directly responsible for causing Nintendo to brand its product the [[Nintendo Entertainment System]] (NES) rather than a "video game system", and using terms such as "control deck" and "Game Pak", as well as producing a toy robot called [[R.O.B.]] to convince toy retailers to allow it in their stores. Furthermore, the design for the NES used a front-loading cartridge slot to mimic how [[video cassette recorder]]s, popular at that time, were loaded, further pulling the NES away from previous console designs.<ref name="g4tv gamemakers">{{Cite episode |title=NES |url=http://g4tv.com/gamemakers/episodes/4844/NES.html |series=Icons |series-link=Icons (TV series) |network=[[G4 (U.S. TV channel)|G4]] |airdate=December 1, 2005 |season=4 |number=5010 |url-status=live |archive-url=https://web.archive.org/web/20121016233741/http://www.g4tv.com/gamemakers/episodes/4844/NES.html |archive-date=October 16, 2012 }}</ref><ref>{{cite web |url=http://archive.gamespy.com/articles/july03/25smartest/index22.shtml |title=25 Smartest Moments in Gaming |publisher=[[GameSpy]] |page=22 |date=July 21–25, 2003 |url-status=live |archive-url=https://web.archive.org/web/20120902124439/http://archive.gamespy.com/articles/july03/25smartest/index22.shtml |archive-date=September 2, 2012 }}</ref><ref>{{cite web | url = https://www.theverge.com/2015/10/18/9554885/nintendo-entertainment-system-famicom-history-masayuki-uemura | title = 7 things I learned from the designer of the NES | first = Sean | last = O'Kane | date = October 18, 2015 | access-date = September 21, 2018 | work = [[The Verge]] | archive-date = October 19, 2015 | archive-url = https://web.archive.org/web/20151019130146/http://www.theverge.com/2015/10/18/9554885/nintendo-entertainment-system-famicom-history-masayuki-uemura | url-status = live }}</ref>

{{Image frame|width=225 | align=right | content=[[File:NES-Console-Set.jpg|200px]]<br />[[File:Sega-Genesis-Mod1-Set.jpg|200px]]|caption=Following the crash, Nintendo became the market leader in America with the [[Nintendo Entertainment System]] (top), with Japanese companies dominating the market for years to come. The [[Sega Genesis]] (bottom), released in 1989, was the first real challenger to Nintendo's market dominance in North America.}}
By the time the U.S. video game market recovered in the late 1980s, the NES was by far the dominant console in the United States, leaving only a fraction of the market to Atari. By 1989, home video game sales in the United States had reached $5 billion, surpassing the 1982 peak of $3 billion during the previous generation. A large majority of the market was controlled by Nintendo; it sold more than 35 million units in the United States, exceeding the sales of other consoles and personal computers by a considerable margin.<ref>{{citation |title=Playing with Power in Movies, Television, and Video Games: From Muppet Babies to Teenage Mutant Ninja Turtles |first=Marsha |last=Kinder |publisher=[[University of California Press]] |year=1993 |isbn=0-520-07776-8 |page=90 |url=https://books.google.com/books?id=raDNu1lThHQC&pg=PA90 |access-date=April 26, 2011 |archive-date=February 9, 2023 |archive-url=https://web.archive.org/web/20230209133536/https://books.google.com/books?id=raDNu1lThHQC&pg=PA90 |url-status=live }}</ref> New Japanese companies entered the market to challenge Nintendo's success in the United States, with [[NEC]]'s [[TurboGrafx-16]] and the [[Sega Genesis]] both released in the U.S. in 1989. While the TurboGrafx underwhelmed in the market, the Genesis' release set the stage for a major rivalry between Sega and Nintendo in the early 1990s in the United States video game market.

=== Impact on third-party software development ===
A second, highly visible result of the crash was the advancement of measures to control [[third-party developer|third-party development]] of software. Using secrecy to combat [[industrial espionage]] had failed to stop rival companies from reverse engineering the Mattel and Atari systems and hiring away their trained game programmers. While Mattel and Coleco implemented lockout measures to control third-party development (the [[ColecoVision]] BIOS checked for a copyright string on power-up), the Atari 2600 was completely unprotected and once information on its hardware became available, little prevented anyone from making games for the system. Nintendo thus instituted a strict licensing policy for the NES that included equipping the cartridge and console with lockout chips, which were region-specific, and had to match in order for a game to work. In addition to preventing the use of unlicensed games, it also was designed to combat [[software piracy]], rarely a problem in North America or Western Europe, but rampant in East Asia. The concepts of such a control system remain in use on every major video game console produced today, even with fewer cartridge-based consoles on the market than in the 8/16-bit era. Replacing the security chips in most modern consoles are specially encoded [[optical disc]]s that [[Copy protection#Video game console systems|cannot be copied]] by most users and can only be read by a particular console under normal circumstances. [[Accolade, Inc.|Accolade]] achieved a technical victory in one court case against [[Sega]], challenging this control, even though it ultimately yielded and signed the Sega licensing agreement. Several publishers, notably [[Tengen (company)|Tengen]] (Atari Games), [[Color Dreams]], and [[Camerica]], challenged Nintendo's control system during the 8-bit era by producing unlicensed NES games.

Initially, Nintendo was the only developer for the Famicom. Under pressure from [[Namco]] and [[Hudson Soft]], it opened the Famicom to third-party development, but instituted a license fee of 30% per game cartridge for these third-parties to develop games, a system used by console manufacturers to this day.<ref>{{cite web | url = https://www.bloomberg.com/news/articles/2020-08-19/epic-games-fortnite-battle-with-apple-and-google-can-be-traced-to-nintendo-tax | title = Epic's Battle With Apple and Google Actually Dates Back to Pac-Man | first1 = Takahashi | last1 = Mochizuki | first2 = Vlad | last2 = Savov | date = August 25, 2020 | access-date = August 25, 2020 | work = [[Bloomberg News]] | url-access = subscription | archive-date = November 6, 2021 | archive-url = https://web.archive.org/web/20211106025128/https://www.bloomberg.com/news/articles/2020-08-19/epic-games-fortnite-battle-with-apple-and-google-can-be-traced-to-nintendo-tax | url-status = live }}</ref> Nintendo maintained strict manufacturing control and requiring payment in full before manufacturing. Cartridges could not be returned to Nintendo, so publishers assumed all the financial risk of selling all units ordered. Nintendo limited most third-party publishers to only five games per year on its systems (some companies tried to get around this by creating additional company labels like [[Konami]]'s [[Ultra Games]] label). Nintendo ultimately dropped this rule by 1993, after the release of the successor [[Super Nintendo Entertainment System]].<ref>{{cite web | url = https://kotaku.com/5930361/how-konami-cheated-to-get-around-a-silly-nintendo-rule | title = Konami's Cheat to Get Around a Silly Nintendo Rule | first = Luke | last = Plunkett | date = July 21, 2012 | access-date = September 21, 2018 | work = [[Kotaku]] | archive-date = September 21, 2018 | archive-url = https://web.archive.org/web/20180921225906/https://kotaku.com/5930361/how-konami-cheated-to-get-around-a-silly-nintendo-rule | url-status = live }}</ref> Nintendo's strong-armed oversight of Famicom cartridge manufacturing led to both legitimate and bootleg unlicensed cartridges to be made in the Asian regions. Outside of Japan, Nintendo placed its [[Nintendo Seal of Quality]] on all licensed games released for the system to try to promote authenticity and detract from bootleg sales, but failed to make significant traction to stalling these sales.<ref name="odeonnel nes10">{{cite journal | title = The Nintendo Entertainment System and the 10NES Chip: Carving the Video Game Industry in Silicon | first = Casey | last = O'Donnell | date = 2011 | journal = [[Games and Culture]] | volume = 6 | issue = 1 | pages = 83–100 | doi = 10.1177/1555412010377319 | s2cid = 53358125 }}</ref>

As Nintendo prepared to release the Famicom in the United States, it wanted to avoid both the bootleg problem it had in Asia as well as the mistakes that led up to the 1983 crash. The company created the proprietary [[10NES]] system, a [[lockout chip]] which was designed to prevent cartridges made without the chip from being played on the NES. The 10NES lockout was not perfect, as later in the NES' lifecycle methods were found to bypass it, but it did sufficiently allow Nintendo to strengthen its publishing control to avoid the mistakes Atari had made and initially prevent bootleg cartridges in the Western markets.<ref>{{cite web | url = https://arstechnica.com/gaming/2013/07/time-to-feel-old-inside-the-nes-on-its-30th-birthday/ | title = The NES turns 30: How it began, worked, and saved an industry | first = Andrew | last = Cunningham | date = July 15, 2013 | access-date = September 21, 2018 | work = [[Ars Technica]] | archive-date = July 22, 2021 | archive-url = https://web.archive.org/web/20210722154751/https://arstechnica.com/gaming/2013/07/time-to-feel-old-inside-the-nes-on-its-30th-birthday/ | url-status = live }}</ref> These strict licensing measures backfired somewhat after Nintendo was accused of [[Competition law|monopolistic]] behavior.<ref>{{cite web |author1=U.S. Court of Appeals |author2=Federal Circuit |year=1992 |title=Atari Games Corp. v. Nintendo of America Inc. |work=Digital Law Online |url=http://digital-law-online.info/cases/24PQ2D1015.htm |access-date=March 30, 2005 |url-status=live |archive-url=https://web.archive.org/web/20110808062812/http://digital-law-online.info/cases/24PQ2D1015.htm |archive-date=August 8, 2011 }}</ref> In the long run, this pushed many western third-party publishers such as [[Electronic Arts]] away from Nintendo consoles and supported competing consoles such as the Sega Genesis or [[PlayStation (console)|Sony PlayStation]]. Most of the Nintendo platform-control measures were adopted by later console manufacturers such as Sega, Sony, and Microsoft, although not as stringently.

=== Computer game growth ===
With waning console interests in the United States, the [[computer game]] market was able to gain a strong foothold in 1983 and beyond.<ref name="usgamer 1983"/> Developers that had been primarily in the console games space, like Activision, turned their attention to developing computer game titles to stay viable.<ref name="usgamer 1983"/> Newer companies also were founded to capture the growing interest in the computer games space with novel elements that borrowed from console games, as well as taking advantage of low-cost dial-up [[modem]]s that allowed for multiplayer capabilities.<ref name="usgamer 1983"/> The computer game market grew between 1983 and 1984, overtaking the console market, but overall video game revenue had declined significantly due to the considerable decline of the console market as well as the arcade market to an extent.<ref name="vgmarket"/> The home computer industry, however, experienced a downturn in mid-1984,<ref>{{cite news |last1=Sanger |first1=David E. |title=Expected boom in home computer market fizzles |url=https://news.google.com/newspapers?nid=1129&dat=19840605&id=W4NIAAAAIBAJ&sjid=HW4DAAAAIBAJ&pg=7089,693646 |access-date=December 2, 2021 |work=[[Pittsburgh Post-Gazette]] |date=June 5, 1984 |archive-date=December 2, 2021 |archive-url=https://web.archive.org/web/20211202113001/https://news.google.com/newspapers?nid=1129&dat=19840605&id=W4NIAAAAIBAJ&sjid=HW4DAAAAIBAJ&pg=7089,693646 |url-status=live }}</ref> with global computer game sales declining in 1985 to a certain extent.<ref name="vgmarket"/>

Microcomputers dominated the European market throughout the 1980s and with domestic production for those formats thriving over the same period, there was minimal trans-Atlantic ripple from American game production and trends.<ref name="ign crash reasons">{{cite web |last=Oxford |first=Nadia |date=January 18, 2012 |title=Ten Facts about the Great Video Game Crash of '83 |url=https://www.ign.com/articles/2011/09/21/ten-facts-about-the-great-video-game-crash-of-83 |url-status=live |archive-url=https://web.archive.org/web/20210128072326/https://www.ign.com/articles/2011/09/21/ten-facts-about-the-great-video-game-crash-of-83 |archive-date=January 28, 2021 |access-date=September 11, 2020 |work=[[IGN]]}}</ref> Partly as a distant knock-on effect of the crash and partly due to the continuing quality of homegrown computer and microcomputer games, consoles did not achieve a dominant position in some European markets until the early 1990s.<ref name="MMC" /> [[Video games in the United Kingdom|In the United Kingdom]], there was a short-lived home console market between 1980 and 1982, but the 1983 crash led to the decline of consoles in the UK, which was offset by the rise of [[LCD games]] in 1983 and then the rise of computer games in 1984. It was not until the late 1980s with the arrival of the Master System and NES that the home console market recovered in the UK. Computer games remained the dominant sector of the UK home video game market up until they were surpassed by Sega and Nintendo consoles in 1991.<ref name="MMC">{{Cite book|title=Video Games: A Report on the Supply of Video Games in the UK|publisher=[[Monopolies and Mergers Commission]] (MMC), [[H.M. Stationery Office]]|date=April 1995|isbn=978-0-10-127812-6|location=United Kingdom|pages=[https://i.imgur.com/CLYiKIp.jpg 66] to [https://i.imgur.com/vR9vtPX.jpg 68]|chapter=Market size and market shares}}</ref>

== References ==
{{reflist}}

== Works cited ==
* {{cite book|last=Provenzo |first=Eugene |author-link=Eugene F. Provenzo |title=Video Kids: Making Sense of Nintendo |publisher=[[Harvard University Press]] |date=1991 |isbn=0674937090}}
* {{cite book|editor-last=Wolf |editor-first=Mark |title=Before the Crash: Early Video Game History |publisher=[[Wayne State University Press]] |date=2012 |isbn=9780814337226}}

== Further reading ==
* DeMaria, Rusel & Wilson, Johnny L. (2003). ''High Score!: The Illustrated History of Electronic Games'' (2nd ed.). New York: McGraw-Hill/Osborne. {{ISBN|0-07-222428-2}}.
* Gallagher, Scott & Park, Seung Ho (2002). "Innovation and Competition in Standard-Based Industries: A Historical Analysis of the U.S. Home Video Game Market". ''IEEE Transactions on Engineering Management'', vol. 49, no. 1, February 2002, pp.{{nbs}}67–82. [[doi: 10.1109/17.985749]]

== External links ==
{{Portal|1980s|Video games}}
* [http://thedoteaters.com/?bitstory=the-great-video-game-crash The Dot Eaters.com: "Chronicle of the Great Videogame Crash"] {{Webarchive|url=https://web.archive.org/web/20180612183648/http://thedoteaters.com/?bitstory=the-great-video-game-crash |date=June 12, 2018 }}
* [https://web.archive.org/web/20060618195311/http://www.twingalaxies.com/index.aspx?c=17 Twin Galaxies Official Video Game & Pinball Book of World Records: "The Golden Age of Video Game Arcades"] — ''story within the 1998 book''.
* {{usurped|1=[https://web.archive.org/web/20180116045349/http://www.intellivisionlives.com/history.php Intellivisionlives.com: Official Intellivision History]}} — ''by the original programmers''.
* [http://www.erasmatazz.com/library/the-journal-of-computer/jcgd-volume-5/the-atari-years.html The History of Computer Games: The Atari Years] — ''by Chris Crawford, a game designer at Atari during the crash''.
* [http://pctimeline.info/c64/ Pctimeline.info: Chronology of the Commodore 64 Computer]— ''Events & Game release dates (1982–1990)''. {{Webarchive|url=https://web.archive.org/web/20120809090241/http://pctimeline.info/c64/ |date=August 9, 2012 }}

{{History of Video Games}}

[[Category:1983 in video gaming]]
[[Category:1980s in video gaming]]
[[Category:History of video games]]
[[Category:Business failures]]
[[Category:Economic bubbles]]
[[Category:1983 in North America]]
[[Category:1983 in economic history]]
[[Category:Second-generation video game consoles]]